America’s Cup benefits shrink – so does cost

Fewer teams, fewer spectators and fewer super yachts mean the America’s Cup regatta is no longer expected to generate more than $1 billion for the Bay Area’s economy, according to a new report, but it also means it will cost substantially less to host sailing’s most storied event.

The upshot is that the Bay Area is still expected to see about $902 million in economic activity as it hosts the contest for the first time, down from a projected $1.4 billion.

San Francisco’s costs have similarly shrunk from an estimated $32 million to $22.5 million, leaving an eminently reachable target of about $3 million more in private fundraising to cover the city’s costs if tax revenue comes in as projected, according to reports The Chronicle obtained Tuesday.

Those findings, including a new economic report that the city commissioned from the Bay Area Council Economic Institute, will be presented Wednesday at a Board of Supervisors hearing requested by Supervisor John Avalos. Avalos called for a hearing after learning last month that the event could cost taxpayers millions more than anticipated. At the time, Avalos said the city got “played” in signing the host agreement.

But with the latest projections, city regatta organizers said that’s far from the case.

“Things are going well,” said Michael Martin, the city’s America’s Cup project director. “This is a good thing. It’s good for the city, and it’s good for the economy. Let’s seize this opportunity.”

Sean Randolph, president of the economic institute, said, “It will still be a very strong event – not on the scale originally thought – but still very strong.”

Avalos still cautious

Avalos was more cautious in his assessment, saying he didn’t believe the initial economic projections in the 2010 report by the Bay Area Council Economic Institute and Beacon Economics, and remained skeptical of the institute’s update of that report.

“Until I see, so shall I believe,” Avalos said as the city prepares for about three months of racing starting July 4, culminating in the America’s Cup finals in September. “There’s not any way to really measure that.”

The America’s Cup effort has been buffeted in recent weeks by the revelation that Mayor Ed Lee was personally leading efforts to raise $20 million from private donors, because fundraising by a group of civic leaders to defray city costs lagged behind expectations. Then came Telegraph Hill residents upset about the expanded size of a temporary amphitheater at Piers 27-29 for related concerts, and an audit showing that workers who provided the setup for two preliminary Cup races last year were owed $400,000 in back pay after not being paid prevailing wage, as specified in the city’s agreement with race organizers.

Still a big draw

Lee’s administration, however, is upbeat about preparations for an event that has already pushed the city to complete a number of waterfront improvements such as a new cruise ship terminal at Pier 27 and a promenade at Fisherman’s Wharf. The contest is still expected to draw 2 million people over almost three months of racing.

That’s about 700,000 fewer than projected in 2010, which has helped lower city costs. After preliminary races last August and October, officials also have a better sense of the amount of police, transportation and other services needed, and how to best deploy them, which is also expected to minimize costs, Martin said.

The America’s Cup Organizing Committee, the civic fundraising group, has already reimbursed the city for $6.8 million of its projected $22.5 million in expenses, city documents show. Bills for another $1.6 million in city costs have yet to be reimbursed. If revenue from hotel, payroll and retail taxes linked to the event come in at the projected $13 million, that leaves a $2.7 million shortfall in city coffers.

Achievable goal

Raising that amount is “very achievable,” said Kyri McClellan, CEO of the America’s Cup Organizing Committee.

“We raised $6 million on the hope-and-prayer campaign,” McClellan said. “We are infinitely better positioned now to ask for support given what’s been accomplished already.”

The committee originally agreed to “endeavor” to raise up to $32 million over three years to defray city costs. A memo from city Controller Ben Rosenfield for Wednesday’s hearing before the board’s Budget and Finance Committee says fundraisers have brought in almost $14 million in cash and pledges for future payment.

Some $8 million of that was a loan from the America’s Cup Event Authority to be partially repaid through a corporate fundraising program. Beyond paying $6.8 million to reimburse city costs, $3 million went toward marketing, promotion and things like setting up an office at Pier 23 that provides information to the teams about navigating life in the Bay Area, McClellan said.

Return on investment

“While we hope the tax revenue and fundraising will cover our reduced costs, if our city had another opportunity to spend a few million dollars for $900 million of economic benefit for our workers and local businesses, I think we’d do it again,” said board President David Chiu.

Avalos said he would be satisfied if city government breaks even on its costs for hosting an event that he acknowledged would have “some major economic impact” on San Francisco as a whole.

But he added that he is “most concerned” about the America’s Cup Event Authority, the arm of Oracle co-founder Larry Ellison’s racing syndicate that is organizing the regatta, fulfilling its commitments about hiring city residents, supporting small businesses and paying prevailing wage on construction-type work.

“I just want to make sure we’re getting the benefits we’re committed to getting,” Avalos said.

America’s Cup by the numbers

A new economic impact report on the America’s Cup provides an updated look at how sailing’s premier event will affect San Francisco and the Bay Area.

2010 Projections

2013 Update

Economic activity generated in the Bay Area

$1.4 billion

$902 million

Jobs created

8,839

6,481

Spectators over three months of racing

2.7 million

2 million

City costs to host races

$32 million

$22.5 million

Hotel, payroll and retail tax revenue for city

$24 million

$13 million

Racing syndicates

15

4

Super yachts

40

10

Sources: Bay Area Council Economic Institute, Beacon Economics, San Francisco Office of Economic and Workforce Development